Angel Investing

Angel investing based on who else is doing so is not the wisest way to invest. At the Angel stage there are several reasons to rule out a potential investment but its a lot harder to rule one in.

In my view the key and perhaps the key (if not only) reason to decide on angel investing in a company is the entrepreneur. (Often there is not much else you can go with in any case).

Entrepreneur's themselves are driven differently, some by a quest for wealth, others by a desire to control their work and lifestyle and some are driven by a dream that want to realize. Each will have different benchmark for success and a different time horizon (in general it increases as you go down the list).

If one sets about joining these men and women in their journey's its important to know your own expectations and tune in with the the type you resonate the most.

Another key aspect is to know what value you bring to the venture, if your only value is money you would be best advised to stick to other investment avenues (in everyone's interest!). While there mayy be functional and domain values you bring owing to your past work, there is one inherent value most financially successful people (if you are Angel investing I would assume you belong to this breed) have.

As an entrepreneur I know the passion and love that blinds one to the fact that the RoCE is just not happening and then like an addict one extends the time frame by yet another quarter/year. And perhaps the best value an Angel investor can bring to the venture is to facilitate that the venture and its key leaders develop the discipline to respect measurable value creation in agreed time-lines (in the first place perhaps temper typical start-up exuberance in setting unrealistic expectations)

Finally, its the ability to walk the fine balance between being a dis-involved investor (Financial Investor as they are often called) and becoming the entrepreneur yourself.

Whether you invest and how much you spread yourself is really a factor of what kind of entrepreneurs you pick and the value you bring to the table, rather than a simple do or don't rule.

No VC? A Blessing in Disguise

I recently read a post "How-VCs-Work" on the venturewood blogsite which was an entreprenuer's take on what I suspect is lack of interest by a VC, the royal ignore that many budding entrepreneurs get from the VC community.

It got me thinking, do we always need big money (read VC) to set up or grow a business?

Let me start by saying that I am not advocating not taking funding support. My submission is merely that lack of this support need not be the reason to not go ahead with your business plan.

It seems now that we have almost completely forgotten how to establish a businesses without a VC bank-rolling us. Not so long back (10 years?) the breed we now know so well as VCs did not exist in India. And yet we did manage to establish businesses many of whom have become icons in their industry segments.

Not having a VCs support forces you to think out-of-the-box for resources. I have heard so many business plans that seek money to build what could be bought. The most common example of this is in the planned organisation structure which seeks to “Hire” people in every function. Not having the money would perhaps force you to use outsourced service providers and free-lancers, often better people than what you would ever be able to hire. The same logic applies to infrastructure and other CAPEX. Lack of money makes you think and focus on core competency like nothing else does!!

Generally, it would be hardest to find backers for new technology and disruptive ideas. Sadly, they are also the ones that seem to need “risk-capital” support the most. But in my own experience, these ideas in almost all cases will take a lot longer to realise the market promise the than you think. Eventually, it all boil down to what is the “right” spend-rate and therefore how long does one need to fund this spend before you turn cash positive. In general, not having money will only mean that you will have a much lower spend-rate. You will not hire and address as many markets as your would have, you would not be able top build a product a featured as would have liked to, your support and delivery systems would not be geared for the hordes of customers you would expect to have. Sounds like a recipe for disaster. But there is a very good chance that you would have spent good money and built way ahead of any takers. “If you build, they will come” rarely works for such business ideas.

There are so many good business ideas that ran through their cash spending faster than they need to and eventually had to close shop.